Dispensary owners should always know what their business are worth
In this ever-changing industry, cannabis dispensary owners should know how much their businesses are worth. This knowledge allows owners to entertain acquisition offers from investors and offer shares of ownership – or equity – to prospective buyers.
Any serious buyer or investor will naturally want to know how much a potential acquisition will cost. If they believe they can make the business worth more in the long run, they may offer less up-front cash in exchange for greater equity in the business.
Experts predict the legal cannabis market will enjoy a spectacular compound annual growth rate (CAGR) of 34.6% by 2025. Because running a business is a long-term commitment, any transaction of this kind should take into account the expected future value of the business within the context of the industry at large.
But the rapidly-growing cannabis industry presents a number of challenges to the usual process of business valuation. Regulatory concerns, legislative uncertainty, and institutional under-appreciation make the process of cannabis dispensary valuation more delicate than that of most other industries.
This is how businesses like Seattle’s Uncle Ike’s can go on the market with a $50 million valuation. But that is a tiny sum compared to Canopy’s $3.4 billion acquisition of Acreage Holdings – which includes $300 million in cash.
There are several ways dispensary owners and buyers calculate these sums. The method you choose may present a chance to establish favorable terms.
3 Ways To Value A Cannabis Dispensary Business
There are three main ways in which investors and cannabis dispensary owners can establish the value of a business. Each method has its own set of pros and cons, but one stands out as being the most accurate and realistic for entrepreneurs in today’s legal cannabis environment.
1. INCOME VALUATION
Income valuation is the simplest way to value a business. With this method, the business is worth the amount of income it generates. If a company earns $1 million per year, every year, then its owner only needs to determine how many years’ worth of income it should sell for. With a weighted average of yearly income, it’s easy to estimate the business’s valuation.
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